Brexit: is a trade deal such a big deal?

With Article 50 now triggered by the British Prime Minister, Theresa May, the hard task of negotiating an amicable and equitable exit from the European Union can start. Many people, of course, are worried about the trade deal (or, in fact, lack of trade deal) which will replace the UK’s long standing relations with the 27 remaining countries in the European Union. There is a worry that a reversion to World Trade Organisation (WTO) rules will mean that tariffs will be imposed on trade in both directions, destroying value in both the UK and EU.

So how worried should supply chain owners in the EU and UK be if there is a failure to agree unfettered and ‘frictionless’ access to each other’s markets? The answer is not as much as they may think. Market access (including quotas, local content, rules of origin and technical measures) is only one of a number of factors which determine the efficiency of a supply chain, and perhaps one which has received undue prominence, not only in the arguments over Brexit, but in negotiations for a number of global and regional free trade deals.

For example, whilst organisations and governments such as the WTO, EU and US have been locked in negotiations over market access lasting many years, manufacturers and retailers have been getting on globalizing their supply chains regardless. Obviously, if economic success relied solely on completely tariff-free trade, the phenomenon of globalization would not have occurred – incidentally, leaving hundreds of millions of people throughout the world still in poverty.

Facilitating efficient trade is just one, albeit important, element involved in creating efficient supply chains. There are many others, not least investment in robust transport and ICT infrastructure. Problems with congestion or slow internet speeds can compromise companies’ ability to compete effectively abroad and this is something that UK policy can directly affect, regardless of whatever trade deal is put in place with the EU.

Providing the environment for the providers of transport and logistics services to flourish is also important. The British government will need to look closely at its taxation policies both to encourage investment in transport providers – shipping, ports and road freight for instance – as well as to ensure that there is a level playing field with foreign competition.

It can be argued that the thorny issue of immigration will have to be given as much priority (if not more) than any trade deal. The industry in the UK relies on thousands of migrant workers, especially from the more recently acceded members of the EU, to work as drivers or within warehouses. Cutting off this supply could increase wages, an important part of supply chain costs, and thereby reduce the UK’s competitiveness. A system of work visas will need to be devised which achieves the balance of being politically acceptable as well as meeting the needs of the transport and logistics sector.

Finally, security also needs to be addressed. It is in the common interest of both the UK and EU to maintain existing security agreements, especially at a time when the terrorist threat is so high and the cargo sector is a critical target.

In conclusion, it is of course in everyone’s interests to agree a trade deal as quickly and amicably as possible. In theory, this should not be difficult as of course the UK’s market is already completely standardized with that of the EU’s after decades of integration. In practice, politics may well play a major role in frustrating the negotiations. However, even if this is the case and no deal is achieved within the two year time frame, it will not be the end of the world. There is a lot more to efficient international supply chains than just tariffs and duties.

Source: Transport Intelligence, March 30, 2017

Author: John Manners-Bell

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